Reliance Communications has very limited downside at current levels: Prakash Diwan

In an interview with ET Now, Prakash Diwan, Chief Portfolio Strategist, Prakash Diwan's Wealth Circle, gives his views on telecom and aviation packs, and talks about top stock picks. Excerpts:

ET Now: In the telecom space itself, a lot of decisions have been coming through off late. But a lot of crucial spectrum levy decisions for incumbents are still pending. What is your overall view on the sector?

Prakash Diwan: The government is getting slightly overcautious in terms of not having to rush into anything, given the kind of precedence that we have seen in the sector. In a way it is good because the Supreme Court decision came in as a jolt. The government needs to have a very clear stand in terms of the methodology which they will adopt in the next round.

So they would probably need more time. Just recently the EGoM for spectrum auction was formed and P Chidambaram was heading it. Now that he has got his responsibility as a full-time finance minister, there would be some rejig of the committee itself.

I am sure it will be much more methodical, much more reasoned out. In a way, it is good. That is exactly what you are seeing in the stocks as well. None of them are panicking, or are showing any sort of a distress. It would be good to wait and watch what comes through in the decision which the government announces.

ET Now: Within the telecom space, if you could just focus on Reliance Communications, that is a stock which has bounced around quite a bit. At current levels, do you believe it is a buy?

Prakash Diwan: Reliance Communications has a lot of news flow adjoined along with it. Yesterday, towards the end of the session, there were rumours about Reliance Industries finally wanting to take it over. Now, if something else dramatic as that happens, it will be a blockbuster, no doubt.

My sense is that at these levels Reliance Communications probably has very limited downside. From that perspective, you could probably take that call. The risk-reward ratio is fairly favourable. So for somebody who is looking at some sort of high-risk, high-return trade, it could make sense to get in at these levels.

ET Now: The aviation sector was grappling with a lot of challenges like high debt, cash flow, and rising crude prices. But things seem to be turning around now. Would you be a buyer at these levels for any of the aviation stocks?

Prakash Diwan: Aviation is a high-risk, high-return sector and is very sensitive to capacity utilisation. My only worry is that in case there was to be some sort of a resurrection of some of the dormant airlines, which had given a huge advantage to the leaders, it could change things again. The competition could again bring down yields, could bring down the load factor.

So you would need to watch those things very carefully. At current levels if you look at, Spice and Jet, both of them are fairly valued. If there is a dip, probably I would go into buying Jet closer to Rs 350- Rs 355 levels, but not at the current price.

ET Now: What is your view on the Adani Group of stocks, given that it has given a poor set of numbers when it comes to the likes of Adani Power. What would you make of them?

Prakash Diwan: The market has priced in these kinds of disappointments. It is not something that the group as a whole can do much about. In fact, there is a lot of negativity around some of its corporate governance issues that had cropped up some time back.

I don't think people have forgotten those very easily. So it is a group that would need to come abreast with much more clarity in terms of the plans and some sort of visibility in earnings. Particularly if you look at Adani Enterprises, it has been in an oversold zone for so long. That takes some sort of a complete dramatic rejig for the management to bring it out of this stupor.

ET Now: Given that RIL has been doing not too much, and yesterday you saw that massive spurt, what is your view? Have all the positives already been factored in?

Prakash Diwan: Not quite. In fact, what we saw yesterday was a reaction from most of the pent up that Reliance has also been into. It has been sideways for so long that any kind of a positive move could bring it into the limelight much more sharply. Reliance will be in the news for the right reasons going forward. You could probably see a lot of momentum, lots of volumes picking up in that and interest coming back. So Reliance would definitely be a stock to be into at these levels as well.

ET Now: The IT pack is strongly up in trades today due to the Cognizant rub-off from yesterday evening. But how are you viewing that sector?

Prakash Diwan: What Cognizant has come up with in terms of guidance definitely augurs well for the sector. It has shown that as long as you are aggressive and are focussed in the right segments, things will work. I am sure HCL and TCS have already shown the way in the same spirit.